ObamaCare Destroying Demand For US Treasury Bills

Boy, this ObamaCare deal just keeps looking better and better.

First, we see US corporations and businesses forced to take writedowns to the tune of billions of dollars of profits that would otherwise have gone into getting the economy out of recession and creating jobs. Why are they losing all this money? Because they committed the unpardonable sin of trying to give their retirees excellent private health care. The Democrats – whom we’ve been saying all along want to socialize the health care system – can’t be having that. So they took away the tax incentives that made providing such benefits worth doing for the companies.

That’s bad. That’s really bad. And anyone who is actually paying attention should be coming unglued that our new law of the land health care system is not only going to destroy American jobs, but American employee-based health care, too, all in one fell swoop.

The yield on 10-year Treasuries – the benchmark price of global capital – surged 30 basis points in just two days last week to over 3.9pc, the highest level since the Lehman crisis. Alan Greenspan, ex-head of the US Federal Reserve, said the abrupt move may be “the canary in the coal mine”, a warning to Washington that it can no longer borrow with impunity. He said there is a “huge overhang of federal debt, which we have never seen before”.

David Rosenberg at Gluskin Sheff said Treasury yields have ratcheted up 90 basis points since December in a “destabilising fashion”, for the wrong reasons. Growth has not been strong enough to revive fears of inflation. Commodity prices peaked in January and US home sales have fallen for the last three months, pointing to a double-dip in the housing market.

Mr Rosenberg said the yield spike recalls the move in the spring of 2007 just as the credit system started to unravel. “The question is how the equity market is going to handle this back-up in rates,” he said.

The trigger for last week’s sell-off was poor demand at Treasury auctions, linked to the passage of the Obama health care reform. Critics say it will add $1 trillion (£670bn) to America’s debt over the next decade, a claim disputed fiercely by Democrats.

It is unclear whether China is selling US Treasuries after cutting its holdings for three months in a row, or what its motive may be. There are concerns that Beijing may be sending a coded message before the US Treasury rules next month on whether China is a “currency manipulator”, though experts say China is clearly still buying dollar assets because it is holding down the yuan against the greenback. Some investors may be selling Treasuries as a precaution against a trade spat.

Looming over everything is the worry that markets will not be able to absorb the glut of US debt as the Fed winds down its policy of bond purchases, starting with an exit from mortgage-backed securities. It currently holds a quarter of the $5 trillion of the MBS market.

The rise in US bond yields has set off mayhem in the 10-year US swaps markets. Spreads turned negative last week, touching the lowest level in 20 years. The effect was to drive credit costs for high-grade companies such as Berkshire Hathaway below that of the US government. This may have been a technical aberration.

Democrats can say whatever the hell they want, but people who AREN’T arrogant, incompetent, ignorant fools understand that ObamaCare is going to be to the US deficit what the HMS Titanic was to the cruise liner industry.

Let’s sum up the above article in bullet points. Stop me when I get to something that sounds like it ISN’T a complete unmitigated disaster in the making:

Investors are braced for a further sell-off in US Treasuries after dramatic moves last week raised fears that the surfeit of US government debt is starting to saturate bond markets

The yield on 10-year Treasuries – the benchmark price of global capital – surged 30 basis points in just two days last week to over 3.9pc, the highest level since the Lehman crisis

Alan Greenspan, ex-head of the US Federal Reserve, said the abrupt move may be “the canary in the coal mine”

there is a “huge overhang of federal debt, which we have never seen before”

Treasury yields have ratcheted up 90 basis points since December in a “destabilising fashion”, for the wrong reasons

the yield spike recalls the move in the spring of 2007 just as the credit system started to unravel

The trigger for last week’s sell-off was poor demand at Treasury auctions, linked to the passage of the Obama health care reform

Looming over everything is the worry that markets will not be able to absorb the glut of US debt

The rise in US bond yields has set off mayhem in the 10-year US swaps markets

Spreads turned negative last week, touching the lowest level in 20 years

We’re borrowing huge sums of money at a current rate of about 3% interest. But as the lenders start getting nervous, they’re going to want to increase that interest. We are in plenty of trouble paying these trillions of dollars back at 3% – but what happens if the interest increases to 5% or 7% as it could very quickly do? The costs of paying these loans would rise to catastrophic levels, and we could find ourselves literally bankrupt overnight.